This blog is about struggles for the control of corporations. For the most part, I'll focus on public corporations headquartered in the United States, issuing securities according to the rules stipulated by the SEC in Washington and (typically) governing their affairs by the laws and judicial decisions of the state of Delaware.
My own prejudices are ... well, I think I'll let you work them out as we proceed day to day.

Sunday, November 30, 2008

A story in Friday's Financial Times (p. 18) formulated with some concision a point I've been mulling for some time. We'll hear a lot about "transparency" in coming months, from regulators in many countriesand in multi-national groupings as well. But "transparency" as it applies to investment funds refers to four very different facts, and it is well that we not lump them together.

In the words of Andrew Baker, of AIMA, as quoted in the FT, it could be "transparency of holdings, transparency of transactions, transparency of who the underlying investors are or of what the performance is".

The case for the proposition that information is and ought to remain proprietary, and thus opaque, is strongest with transactions and holdings. Leaks in these areas contribute to bandwagon effects, or to a sort of ganging up on the injured wildebeest, and in either case the managerial reflex of keeping things close to the vest appears perfectly sensible.

Conversely, the case for transparency is very strong in the matter of investor identity (given the global concerns over money laundering and the financing of terrorist activities) and strong, as well, on performance (in that Mr. Market ought to be able to make comparative judgments).

Let's keep these distinctions in mind. A principle extends no further than the reasons for that principle.

Wednesday, November 26, 2008

A deal long in the making, the acquisition of one global mining company by another, won't happen. It has been sideswiped not so much by the credit markets (just two weeks ago BHP insisted it was going forward notwithstanding) -- it has been sideswiped by the competition policy of the EC.

I refer of course to BHP Billiton, the Anglo-Australian company that had planned to buy the Rio Tinto Group with a share swap at 3.4 to 1.

As I noted back in June, when world credit conditions looked a lot better than they do now, even then the stock of the target company was trading at a level below that suggested by the 3.4 to 1 ratio suggesting that even then the market was concerned that regulators would scuttle the deal.

BHP is the larger of the two concerns, but Rio has the more illustrious history. Rio traces its origins to Spanish mines so old the ancient Roman empire had minted coins from the metal taken from that earth. In 1873, two Rothschild firms -- the Parisian and the London -- joined with other investors to buy the Spanish government's interest in these mines. They restructured the company and turned it into a profitable business run from London.

At any rate, the deal faced scrutiny from regulators in several of the countries in which both companies did business, including South Africa and Australia. But it was the EU that did the scuttling, by making unexpectedly severe demands in terms of the assets that would have to be sold off by the combined entity.

I'll use my humble blog to express baldly an opinion. Scuttling mergers is NOT the best way to ensure competition. There are several reasons for this. One of them is that the predictable action of authorities along such lines preserves incumbent managements against the threat of takeover -- and that the threat of takeover is a valuable deterrent to laziness or self-dealing by incumbents. I'm not making any such charge against the Rio Tinto management, by the way. I'm only saying that in general when authorities act as those in the EU have done, they remove a worry from corporate managers -- and the public needs to have corporate managers worry. Takeovers are among the things they should be worried about.

The best way of ensuring competition is to look for barriers to entry and then lower them. Why is some well-capitalized industrial company somewhere not even now putting money into a start-up iron ore mine? Because the market demand for iron ore doesn't make it profitable? or because there are administrative barriers? If the latter, then the EU might look into how those barriers can be lowered. That would give existing managements more, rather than less, to worry about

Tuesday, November 25, 2008

Bill Ackman of the hedge fund Pershing Square Cap Management, said yesterday that over the next five weeks at least Pershing won't press for talks with giant retailer Target, regarding Ackman's REIT plan.

Ackman had proposed -- and Target management has so far rejected -- a plan in which Target spins off a real estate investment trust consisting of the land underneath its stores, which it will thereafter lease from its spun-off entity.

Target claims that "the potential value created, if any, is highly speculative and insufficient to merit pursuit of a transaction given the costs, strategic and operating risks, and loss of financial flexibility."

Ackman? "We intend to pursue the matter in the new year, after the holiday season.”

My guess is that if holiday shoppers are good to Target's bottom line, the issue will go away for longer than that. This coming month is off course generally the make-or-break time for US based retailers.

Monday, November 24, 2008

Ben Stein, the droning voice of Ferris Bueller's teacher, fancies himself an economist, like his father, Nixon adviser Herb Stein. When he's not a game show host, or an anti-Darwinian propagandist.

Ben has recently posted on Yahoo!Finance a column about why the US and all the other major industrial nations should print money like mad. All the dangers are on the "deflationary" side, he says. There's no danger in the other direction, from inflation/reflation. So ... let's go for it!

Sunday, November 23, 2008

The last time I wrote in this blog about Timminco, the Toronto, Canada-based silicon-processing concern, was late August of this year. The stock price was around C$15 at that time.

The price has slipped to $2.75 since.

The reason for returning to the subject, though, isn't that slide in itself. It is morethat the company has removed a positive report on its technology from its website. The report was called the "Photon Consulting Operational Review," and it purported to review Timminco's production of materials used in the manufacture of low-cost solar cells.

The review came under fire as soon as it was issued, back in the spring, i.e. back when the stock price was C$24.90! Now Timminco seems to be admitting that its critics had a point. In corporate-speak, it "believes that some of the material factors or assumptions originally used to develop the forward-looking information in the Photon Report, including in respect of revenues, production volumes and costs, may no longer be valid."

Here, as in many other instances, the short sellers of a stock aren't nasty manipulators throwing dirt at a well run company. There has surely been short interest in Timminco, but the shorts in these situations come out looking like detectives who ferreted out valuable information, thereby making themselves a profit while performing a public service.

Wednesday, November 19, 2008

I can't say I've admired Mark Cuban in recent years. His public persona is that of the standard-issue billionaire big-mouth, a real-like Tony Stark without the titanium suit, and the ideas behind Cuban's "Sharesleuth" project seem to me entirely misguided.

Gary Weiss explained the problems with Sharesleuth welll in several items posted on his blog in 2007, when that project (supposedly a new model for finance journalism) was at its peak. I'll just link you to one of those items, thereby taking that task off my own shoulders.

Instead I'll say this: unimpressed though I am with Cuban, I suspect he is in the right in his latest fight. The SEC has chosen him as its newest target for its intermittent anti-insider campaign.

I've never been impressed with the idea that punishing insider trading makes sense. Some deterrent for breaches of fiduciary duty is appropriate of course, but that's rather hard to find here.

So I'm rooting for Cuban. Fight the power, MC!

Joe Nocera’s recent book, Good Guys & Bad Guys, makes a related point. It’s in a reprinting of a story Mr. Nocera wrote for GQ in December 1992, concerning Drexel Burnham and Michael Milken.

For the record, Mr. Nocera occupies a ‘moderate’ position on the spectrum of reactions to Mr. Milken [who was in prison when the story was first written]: Nocera argues that the infamous financier was guilty of some crimes, but not of the worst of those of which he was accused, and that his sentence was excessive.

But that isn't what intrigued me about the article. The passage I have in mind quoed an unnamed associate of Milken's saying: “”When a Drexel salesman heard that the corporate-finance department was buying a stock – for what reason he didn’t know – and then advised a client wanting to sell that same stock that he might be better holding on to it, was that an example of insider trading? Or was it something more innocent?”

Good question. Indeed, it’s a better question than Mr. Nocera (who soon drops the query) may understand. There is nothing extraordinary about such an instance, and since given existing law and prosecutorial practices there is no good answer to that question, then the courts and prosecutors who punish insider trading are in effect telling traders, brokers, bond salesmen, etc. that they have to drive 55 miles per hour or below – and that they can’t use a speedometer, because none are available.

That’s wrong.

Personally, when I use the phrase “free markets,” I don’t mean the word “free” as an adjective. I mean it as a verb. Let’s free markets.

Tuesday, November 18, 2008

Sirius has scheduled its annual shareholders' meeting for December 18, and has filed an agenda with four items: the re-election of the board of directors; approval of an amendment in the certificate of incorporation to increase the number of authorized shares of stock; approval of a reverse stock split; and ratification of the appointment of KPMG as accountant.

This is the meeting that Hartleib and allies hope to have postponed.

I've done some quick research on the lawsuit mentioned in Mr. Hartleib's recent press release. It appears he actually filed it months ago, in July, when the precursor company defendant was still known as Sirius Satellite Radio Inc.

The original complaint charged, (and I emphasize, I'm only conveying an accusation, one made as a matter of public record, and I don't intend thereby to give it any cerdence): "Upon information and belief, Sirius and XM did develop an interoperable radio, but based on claims that it could not be marketed commercially, never made the radios available to the satellite radio using public."

The plan to merge the two companies developed, the complaint says, as a way of avoiding the competition that interoperability would have made necessary.

At the end of that month, the merger closed.

In September the defendant moved to dismiss the case, arguing as follows: "Basically, Plaintiff, a private citizen, seeks through this action to substitute his own judgment for that of the Federal Communications Commission and the Antitrust Division of the United States Department of Justice, both of which conducted comprehensive reviews of the proposed merger and its competitive effects over many months -- and approved it."

The court granted the motion to dismiss, but in doing so gave the plaintiff leave to amend -- i.e. until October 27 to file an amended complaint that might cure the defects of the first effort.

So the plaintiff filed his amended complaint on time. This one focuses on the merger as a breach of fiduciary obligation. "The Board and officers of Sirius ... grossly mismanaged its operations by engaging in reckless financing of the merger [ignoring] warning signs that the merger ... would severely damage Sirius Satellite Radio Inc." The complaint notes that shares of Sirius traded at about $2 a share before the merger, and have since (as of late October) fallen to 29 cents per share.

The defendant has again, as of yesterday, Nov. 17. moved to dismiss. In its motion, it says thst the sort of charge I just quoted is a conclusory allegation "without particularized facts about the individual directors' supposed conflicts. Likewise, hartleib carelessly accuses the Board of misconduct ... without identifying specific wrongdoing by any particular member."

That's where matters stand as to the lawsuit. My guess (which is only a guiess) is that Hartleib himself is concerned that things aren't going his way, that the defendants may win this one as well. If so, then it makes sense that Hartleib would go public with a press release just as the defense is making its second motion to dismiss -- appealing over the heads of the judge to the public and the shareholders, so to speak.

Monday, November 17, 2008

Michael Hartleib believes that the management of Sirius XM has been unjustly enriching itself at the expense of its shareholders.

This raises the question: "Who is Michael Hartleib?" Other than the fact that he's the subject in the lead sentence above, I can't find that he "is" anybody whose name most of us should recognize.

Still, he has taken two actions worthy of note in this place. He has created a group called SaveSirius with the idea of waging a proxy fight, and he has filed a derivatives lawsuit in a federal court in California.

SaveSirius has sent formal letters of demand to the SIRIUS XM directors. It demands, specifically:

* postponement of the vote that is seeking shareholder approval to further dilute the common stock by increasing the number of shares in the fully diluted float from 4.5 billion to 8 billion.

* postponement of the proposed reverse split, ranging from 1 for 10 to 1 for 50.

* immediate suspension of all stock compensation plans and other bonuses.

Sunday, November 16, 2008

Shareholders of record as of Oct. 27 will meet on December 9 to approve of the merger agreement.

I don't as yet see that anybody is actively opposing this. I may be missing something, because when I see a company issuing a press release as Grey Wolf did last week saying that two proxy advisory sevices have recommended shareholders approve its impending merger, I tend to imagine there is a fight underway.

When I did an EDGAR search just now I saw a lot of items described thus: Additional definitive proxy soliciting materials and Rule 14(a)(12) material but nothing that says "non-management proxy soliciting materials."

Darn, no fight. "Nothing to see here people. Move along."

2. Carl Icahn hovering over Lions Gate.

Lions Gate Entertainent Corp. is an independent film and television studio behind the cable series "Mad Men" and "Weeds." On November 10 it reported second quarter earnings,. They were below Wall Street's expectations.

This news didn't cause a budge in the stock price (NYSE: LGF). The stock continues to tradfe in a range betwen $6.25 and $6.75.

One factor that tends to keep traders interested in a stock is that Carl Icahn is hovering about, whichis the case here. Icahn bought a large stake in the stock last month, and some fruther news from him is considered likely.

Lions Gate issued three movies in the second quarter that had disappointing box office: My Best Friend's Girl; Disaster Movie; Bangkok Dangerous. Not so boffo.

3. Plaintiffs' bar in securities litigation suffers a defeat in F-cubed action before the 2d circuit.

The 2d circuit has upheld the dismissal of a class action brought against National Australia Bank Ltd. in New York.

NAB is (as you might have guessed from the name) an Australian financial corporation, which has suffered significant losses on mortgage-related investments in the US. NAB is listed on the Australia Stock Exchange. This lawsuit was brought in a federal court in New York by foreign investors, for blatant forum shopping reasons.

These are called F-cubed because such cses have three indicia of foreignness: foreign issuer, foreign plaintiff, foreign exchange listing. The alleged nexus to the US is only that the defendant made bad investments in the US. The second circuit says this isn't enough.

Wednesday, November 12, 2008

There's a good deal of speculation these days about the composition of the incoming Obama cabinet. It gets almost as much attention in the broadcast networks' news shows as the choice of a new White House puppy.

One intriuing bit of guesswork is that Timothy Geithner may be the next Treasury Secretary.

Geithner, who since November 2003 has been president of the New York Fed, would be a non-partisan choice, certain of Senate approval sans fireworks. He has held important posts under both the Clinton and the Bush (II) administrations, and is himself an avowed independent.

The New York Fed, institutionally, is the Wall Street annex of the federal reserve system itself. Though the brains of our central bank has to stay in Washington, it has to have both its eyes and its hands in southern Manhattan.

Geithner was profiled in the June issue of Portfolio, by Gary Weiss. In those innocent days, before the Lehman collapse, before the stock market panic of September and October that killed the McCain campaign and led to the nationalization of key financial firms -- before all of that, Weiss focused on Geithner's "informal brains trust," a group of Wall Street luminaries with whom he has been consulting.

These may also be figures of moment in Washington for all or some of the next four years: John Thain; Gerald Corrigan; Paul Volcker. No spring chickens in the group. John Thain is the reative youngster, at a spry 55 years. Volcker was the head of the Federal Reserve in the late Carter and early Reagan years, for goodness sake. Corrigan was Volcker's special assistant in those days.

If the Obama administration recruits its economic team from such a crowd, it will have made the decsion that the country needs some old wise white-haired heads around, for when those emergency calls come in at 3 AM from Greenwich, CT or the Isle of Man.

Tuesday, November 11, 2008

I'll pursue the technological point I mentioned in yesterday's entry for a moment today, because I do think its healthy for those of us who characteristically write about the financial side of business news to re-focus when we can on the operational side -- on the fact that companies do stuff, they make things, they provide services to people, etc.

The cash flow, and everything connected with it, ultimately is founded on this doing-of-stuff. Operations should drive finance, not the other way around.

So in trying to understand the dispute over Tecumseh, I found myself wondering what exactly is a "scroll compressor."

To start at the start: a "compressor" in the relevant sense is a device that increases the pressure of a gas by reducing its volume. The more traditional sorts of compressor are: rotary, reciprocating, or wobble-plate. Reciprocating compressors, just for example, use pistones driven by a crankshaft.

A scroll cmopressor, on the other hand, involves two spiral-shaped surfaces, interleaved. One is fixed, the other orbits eccentrically without rotating. If you look at a diagram of this, the effect is positively hypnotic. There's a photograph that will give the general idea.

The site that includes that photograph also gives a list (in the context of their use cooling milk) of some of the benefits of scroll compressors: they require less electrical current than the alternatives, make less noise, are easier to maintain since there is no metal-on-metal friction, etc.

So now I understand: one of the contentions of the dissidents in the Tecumseh proxy fight is that the management failed to make a transition to scroll compressors in a timely way, and is now behind the rest of the industry.

On the other hand ... scroll compressors are not without their drawbacks. They're more vulnerable than other compressors to damage caused by foreign objects, or by brief power interruptions.

At any rate, these issues have been under consideration within Tecumseh for more than a decade. In the company's 2000 annual report there's a reference to the company's investment in a scroll compressor manufacturing facility, with the rueful observations that, "In 1996, unacceptable field testing results led to the abandonment of this particular design. Since then, several new designs, intended to serve primarily commercial applications, have been under development and testing."

So that's my bit of didacticism on engineering for the day. Back to finance tomorrow.

Monday, November 10, 2008

Tecumseh Products, a Michigan-based manufacturer of compressors for heat pumps and refrigeration products, especially for the commercial and industrial markets, is seeking to put a chill into a bid for control by the Herrick Foundation. The matter will come to a head at a special meeting on November 21.

The proxy advisory firm Glass Lewis has come to Tecumseh's aid with a report that says among much else: “We see no reason to believe that the replacement of current directors with the [Herrick Foundation] nominees would provide more meaningful returns to shareholders than management’s current strategy.”

This proxy fight has a nearly two-year time line. It was in February 2007 that Herrick informed Tecumseh that it would be nominating three candidates for director. This was a bid for control, since the board has only five seats.

Tecumseh replied by expanding its board to seven seats. After some back-and-forth over the following weeks, the parties reached a one-year standstill agreement in April. This agreement left Herrick with two of the seven seats.

So in the spring of this year, that agreement came to its end and the back-and-forth manuveuring resumed. In April 2008, the Tecumseh board amended the company by-laws to make it very difficult for shareholders to call a special meeting. Herrick sued.

In August,the circuit court in Lenawee County, Michigan, ordered a special meeting for November 21. The purpose of the meeting is to consider the removal of two directors and the election of new directors to fill the vacancy if removal is approved. The two directors that Herrick has targeted for removal are Tecumseh's longest-serving directors, Peter M. Banks and David M. Risley.

Obviously, if Herrick manages to replace Messrs Banks and Risley with two directors more favorable to itself, its share of the seven member board rises from two seats to a majority four.

An intriguing but rather isolated line in Herrick's proxy materials says, "The industry trend is toward the use of scroll compressors, which competitors have had for some time, but Tecumseh is in the early stages of offering."

What's a scroll compressor and how does it differ from the sort of thing Tecumseh does offer? A homework assignment!

Sunday, November 9, 2008

I observed, on October 13, that the hedge fund Rousseau Asset Management was challenging the incumbent board at Noront Resources Ltd. and I wondered aloud what was the inspiration for the fund's name? the painter? the Enlightenment philosopher?

So today I make an overdue acknowledgement of reader "Rosedale," who told me (on October 28, the very day on which the meeting was scheduled) that RAM is named after Canada's Lake Rousseau, where the fund's manager, Warren Irwin, has his boat.

Noted. Now ... what happened about the proxy fight?

The day before the meeting, October 27, Noront and Rousseau settled their differences. Noront's president, Richard Nemis, agreed to step down as Prez and to become instead "chairman emeritus" and "special advisor" to the board.

The office of president is now occupied by two men, Joseph Hamilton and Paul Parisotto, as a team. But they are doingso only on an "interim basis" while theboard looks for someone to take the job on permanently.

As to the question of who is to sit on the board (which is after all at least the headliner issue in most proxy fights), the two sides worked out an elaborate ballet. They jointly recommended the election of three nominees from the incubent board and four nominees from the challenge slate. So they have a seven seat board, right? Wrong.

Immediately after the election, by agreement, one of he nominees from the challenge slate and two of the nominees from the former incumbent slate resigned as directors. The challenge-slate resignee, Michael Woollcombe, was not replaced. But the two incumbent resignees, Maurice Stekel and John Blancheflower, were immediately replaced by two appointees nobody had nominated.

So the company now has a six-seat board of directors. One of these was a member of the previous board, three were from the challenge slate, and two are agreed-upon appointees from either.

Curious. And as theatrical in its own way as any drama ever barred from the City of Geneva.

Wednesday, November 5, 2008

The Cleveland, Ohio based mining company, Cliffs Natural Resources, has rescheduled its special shareholder meeting, called to approve its proposed merger with Alpha Natural Resources.

The company was known as Cleveland-Cliffs until last month, and it had planned to hold the special meeting on November 21.

Now they have set a new date -- almost a month later. The meeting will take place December 19, with a "record date" of November 19.

Ohio statutes require a supermajority of shareholders to approve of such a merger, so opponents can block this deal with 35%. Such opposition does exist, as those who've been following the matter along with me know.

My reading of the delay is that the management at Cliffs knows they don't yet have the votes to push this through. But they think they can persuade some of the dissidents to vote their way given the extra month they've now given themselves.

Alpha is unhappy. It has brought a lawsuit in Delaware seeking to obtain an order invalidating this re-scheduling. What gives there? Does Alpha want to push the deal through quickly? or do they want to kill the deal by holding the vote befoe any of the dissidents can be persuaded to change their views? (Seller's remorse?)

Tuesday, November 4, 2008

First, I hope for my own sake and that of my fellow countrymen and women that the decision today isn't especially close so we don't end up spending the next two months debating about hanging chads, butterfly ballots, disputed absentee ballots from military bases, or whatnot.

It appears, from what little we know so far (I'm writing a little after 9:30 AM in the east) that this will not be the case. Senator Obama seems likely to end the night with a mandate.

I'm not especially trusting of polls, but I do have a high opinion of the efficacy of prediction markets such as this one. Intrade is showing as I write that you have to pay more than 91 cents for a chance to win a dollar on the bet that Obama will become President. You can buy onto McCain's Straight Talk bandwagon for just 9 cents. It is petty clear what that means.

In terms of economic/financial policy, I suspect a Prsident Obama would go along with the rising call in Europe and East Asia for a new Bretton Woods-style conference to develop a global system for the co-ordination of monetary policies, exchange rates, etc. What would come out of such a conference? One likely result would be the formalization of a new role for the Chinese yuan as the central pillar in this new system. It is the only currency that could possibly hold the position that the US dollar once did.

That's an index of the size of the changes underway and the changes to come.

Monday, November 3, 2008

Penn National Gaming owns and operates gambling facilities, (including racetracks) -- operating in 14 of the states of the US and in the province of Ontario.

Just last week it issued 12,500 shares of preferred stock to raise $1.25 billion. It had to raise that money in order to get out of a contract to be acquired by Fortress Investment Group and Centerbridge Partners -- a deal that was drawn up in the summer of 2007, and thereafter unravelled as have so many others during this credit crunch.

PNG holds its annual stockholders meeting on November 12. The management will ask stockholders to approve its long-term incentive compensation plan. There will be some opposition to this.

Indeed, at last year's meeting stockholders voted against a similar plan, which as this year involved seeting aside a substantial chunk of the issued equity for awards of various sorts to both employee and non-employee directors. One of the proxy advisory groups, Proxy Governance, has said that that vote reflected "a level of shareholder opposition infrequently seen."

This year the board's compensation committee is saying, in effect, "if the shareholders don't approve this set-aside, we'll just have to incraese the honchos' compensation with larger cash salaries."

As threats go, that's pretty lame. If shareholders are ticked off at management, they'll express this in the manner available to them.

Proxy Governance's report also makes the case that the compensation to these honchos is already high relative to the compensation of directors in comparable firms.

Personally, I'll be pulling for another rebellion in the ranks this year.

Sunday, November 2, 2008

Target's shares (NYSE: TGT) fell 6% on Thursday, AFTER bill Ackman announced his plan to enhance the value of Target's equity through a REIT spinoff.

It seemed safe to conclude the market doesn't like his plan. But then, the stock gained most of that value back on Friday. So one might have to re-think this.

I'll attaching a stock chart for last week. Target's price moves are the blue line, compared here to those of the DJIA, in yellow.

Target seems to have risen Tuesday and Wednesday. The DJIA too was rising Tuesday, but was flat on Wednesday. We can infer, I think, that traders were "buying on the rumor" as the old adage has it. They were buying on the expectation that Ackman would present a plan, even without knowing what the plan was.

What's the other half of that aage? "Buy on the rumor, sell on the fact." My own best guess is that when Ackman publicly announced his plan, whatever it was, there was bound to be some decline.

then on Friday, with the twin requirements of that adage satisfied, did the market finally express its considered opinion of the plan? If so, the plan is good, but not a Wowser! kind of good. The price rose Friday, but so did the DJIA as a whole, and the Target rise was only slightly greater than the Dow's.

I'm in a lazy Sunday kind of mood so I've let the market do my thinking for me. Here's a link to those ho want to read some less lazy blogging on this issue.